Closing At Confluence: Biotech

On a closing basis, biotech’s hit three areas of resistance.

We’ll put all the lines up at one time (chart above) and then break it down.

First, there’s the underside of the trend break that’s already been discussed in prior updates.

Second, the resistance formed by the underside of the head and shoulders pattern identified in a prior update as well.

Last, we could have a trading channel in effect. If so, price action contacted and closed at the right side in yesterday’s session.

The following charts get a closer look at two resistance areas:

Using a ‘reverse trendline’ technique outlined by Weis in his DVD, we take contact on the left side and move it to the right.

The chart below shows the H&S resistance area (underside) contact:

Putting all lines together gets us the chart at the top of this post.

Long term MACD indicators are down; both monthly and weekly. Momentum is to the downside.

Probabilities favor a reversal

The potential downside is enormous. The markets are extended the most in history. Margin debt the most in history.

We’ve got kids running around with trading apps designed to make it look like a game. It’s no different from the Shoe Shine Boy at the steps of Wall St., giving out tips.

Positioning:

We’re short biotech via LABD (not advice, not a recommendation).

The highly leveraged inverse ETF, performs best when the direction of IBB is down in a steady and decisive move.

Otherwise as we saw near the close yesterday, IBB could be reversing to the downside while LABD is still eroding lower in value.

Inverse fund BIS does much better in this area but is not nearly as liquid. That makes pre and post market trades impossible.

We’ll be looking for IBB to post a new daily low as confirmation a reversal is underway.

Stay Tuned

Charts by StockCharts

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

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